Written on: August 16, 2016
Natural gas commodity prices are half what they were in 2004. And yet, average home gas bills haven’t budged.
In fact, average gas utility bills in Texas were slightly higher in 2015 than they were in 2004 — despite a dramatic drop in the cost of natural gas over that same period.
How can this be? Why aren’t Texans enjoying real savings in their gas utility bills?
The answer relates to pipeline and distribution charges, which are little known components of home utility bills that nonetheless can make big differences over time.
Because gas utilities are monopolies (think Atmos Energy in the DFW area or CenterPoint Energy in Houston), the rates they charge to deliver gas to Texas homes and businesses are set by state regulators. . Every home gas utility bill includes these regulated pipeline and distribution charges along with a charge reflecting natural gas commodity costs.
It’s the regular increases in these regulated delivery charges that have consumed much of the savings that Texans should have expected in their home gas utility bills. To make matters worse, controversial “alternative” ratemaking schemes allow monopoly utilities to frequently hike rates without substantive regulatory review.
Let’s look at the numbers.
According to the United States Energy Information Administration, the average annual commodity (Henry Hub) price for natural gas declined by 55.5 percent from 2004 through 2015. At the same time, average overall natural gas prices for Texas home consumers (delivery charges, plus those commodity costs) increased by nearly 3 percent — from an average of $10.37 (per thousand cubic feet) to $10.65.
And Texans served by monopoly gas utilities during this period have endured a constant uptick in distribution and pipeline charges. Take, for instance, Atmos Energy, which is one of the state’s largest gas utilities. Atmos has three utility divisions in Texas — Atmos Pipeline, Atmos Mid Tex and Atmos West Texas — and serves millions of customers.
According to regulatory filings, the Atmos Pipeline Texas division increased its rates 19 times since 2004. Again, that’s 19 times. Meanwhile, Atmos Mid Tex increased rates 16 times and Atmos West Texas increased rates 11 times.
Because of alternative rate-making rules such as those included in the “Gas Reliability Infrastructure Program” (adopted in 2003 by the Texas Legislature) most of these increases have been implemented without substantive regulatory review. All told, the three Atmos divisions increased rates by a combined $347 million since their last fully-reviewed rate cases.
But Atmos customers are by no means alone. The Gas Reliability Infrastructure Program and other alternative ratemaking schemes also have contributed to millions of dollars in rate hikes by other major Texas utilities over the last decade.
City and consumer coalitions have called for the end of the Gas Reliability Infrastructure Program, as well as for the transfer of gas rate regulation from its current home, the Texas Railroad Commission, to the Texas Public Utility Commission that currently oversees electric and water rates.
Those issues and more may arise during a top-to-bottom review of the Texas Railroad Commission, when the legislative Sunset Advisory Commission examines the regulatory agency in 2017.
R.A. Dyer is a policy analyst for TCAP, a coalition of more than 170 cities and other political subdivisions that purchase electricity in the deregulated market for their own governmental use. Because high energy costs can impact municipal budgets and the ability to fund essential services, TCAP, as part of its mission, actively promotes affordable energy policies. High energy prices also place a burden on local businesses and home consumers.